Stagflation refers to a period of weak economic growth coupled with high inflation. Stagflation is a combination of the words “stagnation” and “inflation.” When both these factors are present, it heralds hard times for the people and the economy of the nation.
Stagflation was first coined to refer to a period in the 1970s when high unemployment, high inflation and a weak economy all combined to hammer the United States. It was brought up again in the late 2000s when the U.S. stimulus packages were resulting in high inflation without lowering unemployment. Stagflation usually results in the weakening of a currency as a nation’s fundamentals deteriorate, but this effect is based on a limited amount of data and may not work in all market conditions. The USD, for example, has the ability to rally in uncertain global markets despite deteriorating fundamentals. This is largely because it is seen as a safe haven currency.
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